Officials coy on talks, but deal seen on yuan

PUBLISHED : Friday, 09 April, 2010, 12:00am
UPDATED : Friday, 09 April, 2010, 12:00am

Vice-Premier Wang Qishan and US Treasury Secretary Timothy Geithner concluded whirlwind talks last night without announcing any concrete results. A brief statement afterwards made no reference to Washington's concerns about China's stance on the value of the yuan, which has strained relations between the two countries.

Still, observers said their meeting would pave the way for both nations to resolve their differences on the issue at future forums, including the next round of their strategic economic dialogue.

A statement released by the US embassy in Beijing, Xinhua and the US Treasury Department said: 'The two sides exchanged views on US-China economic relations, the global economic situation and issues relating to the upcoming economic track ... of the second US-China strategic and economic dialogue, to be held in Beijing in late May.'

Geithner left for the US after the 75-minute meeting, which took place at the VIP terminal of Beijing International Airport, Bloomberg reported.

'The currency issue is a very complicated one because any decision would have serious impacts on both economies. Thus Geithner's visit may have focused on the agenda for next month's Sino-US high-level talks,' said Tao Wenzhao , a senior research fellow at the Chinese Academy of Social Sciences' Institute of American Studies.

Geithner's flying visit came days before President Hu Jintao heads to Washington for an international summit on nuclear security - and suggests the two countries are getting their relationship back on track.

Hours ahead of the meeting, a newly appointed adviser to the People's Bank of China, Xia Bin , said China should resume a managed-float foreign exchange system soon because the impact of the global financial crisis had faded.

Xia's comments appeared to suggest China intends to end the yuan's de facto peg to the US dollar and allow the currency to rise, although the timing of such a move remains unclear. Last month, central bank governor Zhou Xiaochuan signalled Beijing soon would look to end the de facto peg.

Between 2005 and 2008 it allowed the yuan to rise by 20 per cent against the dollar, but reimposed the peg after the global financial crisis hit.

Xia said the peg was no longer necessary because 'the worst of the crisis is over'. But he did suggest that any rise in the yuan should be small, saying a large appreciation would not be beneficial to the domestic or global economies.

Wang is in charge of economic and financial issues and heads the Chinese side for the strategic and economic dialogue with the US, with Geithner America's point man.

Tom Orlik, an economist with research firm Stone & McCarthy in Beijing, said the flurry of diplomatic activity on the exchange rate issue, including Geithner's unscheduled trip to Beijing, had fuelled speculation the yuan would soon be allowed to begin rising again.

Currency traders were yesterday betting on a 1 per cent rise in the yuan in the next three months - the biggest since July 2008. Traders said the US Treasury's decision on Saturday to delay by three months its report to Congress on whether China is manipulating its currency had given Beijing room to reform the mainland's rigid exchange regime and to allow a gradual appreciation of the yuan.

Orlik said that, with the recovery in exports sluggish and inflation still muted, Beijing might want to wait a while longer before allowing appreciation to resume.

The model for the coming shift in currency policy is Beijing's 2005 move to allowed the yuan to jump 2 per cent against the dollar overnight and then to trade in a wider daily range, but with a trend towards further strengthening.